katsanevas and livanos 2006

8/9/2019 Katsanevas and Livanos 2006

1/13

Unemployment

in

Greece:

trends and

main

causes

Theodore

Katsanevasl and

llias

Livanos2

1.

Department

of Economics,

University

of

Piraeus

2.

University

of

Warwick

Abshact

The hend

of unemployment

in Greece

over the

last

three

decades

has been

similar

to other

European counties.

while

this was

not

a

problem

before

the

first

oil crisis,

its

rate

accelerated

after this

point.

This

article

explores

the main

causes of

high

unemployment

in

Greece such

as

the

link of the educational

system

with the

needs

of

the labour

market, the flexibility

of

the

labour

market

as

well

as

the

efficiency

of

the labour n-rarket

policies

applied

so far.

The

examination

of

these

institutional

factors

and

their impact

in unemployment

lead

us

to

conclude

that

a

large

part

of

the

unemplogment

in

Greece

is due

to structural

reasons,

and,

therefore,

microeconomic

policies

are

needed

in order

to

tackle it.

JLE

classification:

J6.

J64

L.

Infoduction

Until

the beginning

of

the

1970s,

unemployment

was

not

a

problem

for

most

economies.

Since

then,

in combination

with

the

two oil crises,

its

trend

showed

a dramatic

increase

almost

in all

EU

economies

as well

as

the

in the US

and

Japan.

However,

the

highest

increase

was

in Europe,

where

in

the last

ITavmrctipro

ITetparig

-

University

of

Piraeus

Enonptovtxi

Enernpiio

npog

rytnv

too

KaAnymotj

A.

[TovayrcrfnoaAoa

2006)

581-594

Essays

in honour

of

Professor

A.

Panayotopoulos

2006)

581-594


2/13

st lised


3/13

Unemployment

in

Greece:

trends

and main

causes

583

in Europe

and

in

US.

In the

US,

that

the

market

operates freely

and this has led to increased

inequality

as workers with obsolete

skills have

to

reduce

their

wages

in

order

to

find

employment.

On

the

other hand,

in

Europe, where

benefit

systems

are

more

generous,

individuals

with redundant

skills do not agree to work

for

lower wages

and

therefore

because

of

the

employment benefits

they find

unemployment

attractive. However, many

are

the

critics

of this

idea.

We now turn to the

existence

of

unemployment

in

Greece.

3.

Unemployment

in

Greece

Before

the first oil

crisis,

the

Greek

economy

was

one of

the

fastest

growing

economies

of

the

world

while the

reported

unemployment rates

were

particularly

low.

After 1974,

the

rate

of

growth

showed down

and at

the

same

time unemployment

elevated very

fast. However,

this

drastic increase

as well as the

low levels

of

unemployment

before 1980 should be

treated

with

caution

since

at that

point

the official way

of

calculating

unemploy-

ment

changed

and

as

a

result

the

real

rates

of unemployment

were

reported

(Katsanevas

1986). In the

beginning

of

1990

its

rates

increased

further to the

European

average. The

situation

remains

the same today.

In

particular,

in 2003,

unemployment

was

9.3% comparing

to

the European

average

o{ 8.77

(European

Commission

2004).

Studying

the

Greek

labour market,

the

high rates of

unemployment

can

be

attributed

to

the

following:

3.1 The

demand for

individuals

with

high

qualifrcations

does

not

match

with the supply

This

phenomenon

can

be

easily

observed

if

one

considers

the

fact

that the level

of unemployment of

people

holding masters

or PhDs

is

higher than

people

with

basic education.

The high

rates

of

unemployment

among

white collar workers, which

is

contrary

to

most

OECD countries (2000), has

been

highlighted

as a major

botileneck by

several research centers

and

organizations

such

as

the Employment

Observatory

of

Greece

(2003),

the


4/13

584

Theodore Katsanevas and

Ilias Livanos

NationalStatistical Service

of

Greece

(ESYE) (2003),

the

European

Commission

(2003)

and

Cedefop

(2003).

This

phenomenon

not

only

exists

but

also

seems

to

have

an

upward trend.

Indeed,

European

Commission

in

the study

uEuropean

education

produ-

ction

functions,

points

out

that

Greece

is

the

only

country

(among

18

developed

countries

that

were examined

in

the study) that

unemployment

for

graduates

is rising ever7

year

(bV

2 ).

Furthermore,

Cedefop

comments

that until

2010,

the demand

for

upper

secondary

education

graduates

in

Greece

is

expected

to

rise more

than for university

graduatesl.

Research by

the

Na-

tional

Statistical Service

of

Greece

(2003) points

to

a

similar

conclusion.

Particularly,

it

highlights

the fact that

university

gra-

duates

face

higher risk

of

unemployment

than secondary school

graduates,

while also being

expected

to

remain unemployed

for

longer before

they find a

job.

Specifically,

it

is

reported

that

the

average

time

for a

graduate

to

find

a

job

is

expected

to

be

three

and a

half

years.

The main

reasons of

this

phenomenon

are

two.

The first

is

the

weak

link

between

the

educational

system

and the

labour

market

(Katsanevas

2002).

Consequently,

the

supply

of

labour

cannot

meet the demand,

and, as

a

result, unemployment

of

type arises.

The

Center

of Planning

and

Economic

Research

(KEPE),

in

trying

to assess

the

reason

that

accounts

for

the difficulties

of

young

people

to find a

job

in the

labour

market

after

graduation

from the

university,

suggests

that

it is

due

to

the

orientation

of

the

educational

system

towards

the

public

sector

(2003).

In

other

words, the

main function

of

the

educational

system

is

to

prepare

employees

for

the

public

sector

such

as teachers,

bank clerks,

public

administrators

etc. while

at

the

same

time the

public

sector

is

shrinking

(Karadinos

2000).

Particularly,

as

KEPE

(2003)

points

out,

the

public

sector

is

trying

to reduce

its employees,

especially

those

in

public

admini-

stration.

and. as

a result

hires less

than those

who

are

retired.

Therefore,

the

public

sector

has

stopped

being

a

safety

net

against

unemployment

of

graduates

and

to

draw

on

the

words

of

the National

Institute

of

Labour

(EIE)

.the

public

sector

has

abandoned

its

role

as

a

major employer

of AEI

graduates,

(2002:


5/13


6/13

586 Theodore Katsanevas and Ilias Livanos

to

spend a

lot

of

money.

The

situation

described

above

selves

to reflect

the

persistent

intention

of

students and their families

towards

higher

education

(Psacharopoulos

and

Lampropoulos

1992, Kanellopoulos and

Psacharopoulos 1997).

3.2

The

faifure of

Aclive l-abour Market Policies

The role of

the Active Labour Market Policies

(ALMP)

in

dealing

with

high

rates

of unemployment

is crucial as it neither

seems

to

provide

efficient

matching behi,,een the existing vacancies and

job

seekers

nor

does

it

provide

well-designed

training

programs

for

the

unemployed.

In addition, the spending by the

government

on these is relatively

low

compared

to

other countries.

The

orga-

nization

responsible

for the

matching

of

vacancies and

job

seekers

is the Manpower Organization of Greece

(OAED).

However,

its

efficiency

is

quite

limited and, consequently,

efficient

matching

cannot be made whereas a

rise in

nfrictional

unemployment,

is

caused.

An

older study of the European Commission

suggests

that

the

role

of

public

employment

services

in

Greece

is

very

limited and

that

it

has

actually been

reduced

since 1980.

A

more

recent study

that was

conducted

during the

period

1999-

2001

by

the INE-GSEE for the European international

program

TSER

finds

out

that

only 6% of

new

unemployed

and 14.47

of

the

total

unemployed

finds a

job

using the

OAED

seruices4.

The

reason for

this

is

twofold. On

the

one

hand, individuals

rarely

search

for a

job

through

the services

of

OAED

(Sabethy

2000) as they

usually

rely

on

informal

channels

of

information

while

searching

for

jobs,

mainly

through

personnel

contacts

(in

the

study of

INE-GSSE mentioned above, 49,37 found employ-

ment

through

personal

contacts such as

family

and

friends while

73To

of

the new

unemployed state

that they refer to their

contacts

as a searching

method)

whereas on

the

other

hand the

seruices

of

OAED

seem

not

to

be

reliable. As

far

as the latter

is

concerned,

the

European Commission

(2003)

suggests that it is due

to the

lack

of

adequate personnel

to

provide quality

selices

to

the

job

seekers.

However, the

fact

that

employment

services is not

a

monopoly of the

public

sector

any

more

may

have a

positive


7/13

Unemnlovment

in

Greece: trends and main causes 587

impact

on

the

quaiity

of

seruices

they

provide,

something

that

according

to

a study of European

Commission

has

happened

in

other

European

countriess.

Furihermore. Greece s spending

in

Aciive

Labour Market Policies

(ALMP s)

is far less

compared

to

other

countries.

To

illustrate,

OECD

in the latest

Employment

Outlook

(2003)

ranks

Greece

in

the

last

place

concerning the

amount spent in

ALMP. Particularly

low is the

spending

on

employment subsidies,

which, as earlier siudies have shown, has

beneficial effect in unemployment

(Apostolakis

and Bobby 7987).

However, the training

systems

for the

unemployed do

not

link

to

the

actual

needs

of

the labour markei

whereas

their

efficiency

is not recorded and their design is supply, and not

demand,

oriented

(lNE

GSEE

2001). It is worth noting that in the research

of INE

GSEE

mentioned above, onlg 9,27o of the

unemployed

who

attended an OAED course of

training found

employment

afterwards.

As

far as

the

unemployment benefits are

concerned,

they are considerably

low

(Sabethy

2000)

and

thus

the

hypothesis

that high unemployment

benefits

raise the level

of

unemployment

(Nickel

1999]r

is not

the

case

for

Greece.

3.3

High

legal

protection

and the non wage cost of

employees

A third

reason

that

accounts

for the high

raies

of unemployment

in

ihe labour market is the high

legal

protection

that the

already

employed workers have,

which

makes

it

even harder for

young

people

to find

a

job

(Layard,

Nickell

and Jackman

1991).

In

other words, employed people

face

high proteciion and,

therefore,

new

entrants

have to

stay

longer in

unemploymeni before

they

find

a

job

(ibid).

This

seems

to

be

the

case

in

Greece, as

there

is

high

protection

of

employees.

Ii

is rather

difficult to fire

person-

nel

while

hiring new

employees

has relatively high

cost

(KEPE

2003). Indeed,

Van de

Velden and Wolbers

(2001),

comparing

the

degree

of

the

employment

protection6

among European

countries, rank

Greece

in the second

place

after Portugal.

In

addition, the employment

prospects

of young

entrants are impacied

by

the

combination

of

the

high non-wage cost and

the low level

of

low wages

in

Greece

(Sabethy

2000).


8/13

588

Theodore

Katsanevas and llias Livanos

3.4

The inflexibility

of

the labour market

The

Greek

labour market can be

characterised as

rather inflexible

and

highly regulated compared

to

oiher

EU

cour-rtries

(Bentolila

and

Saint-Paul

1992,

Emerson

1988),

although

during

the iast

few

years

some changes

have been tnade

towards

more

flexible

practices.

However, hirirrg

and firing

practices, protective

rules,

and collective or

individual

dismissals

are heavily

regulated and

thus it could

be

suggested

that

employment

has not risen as

fast

as

in

less

regulated countries

(Crouch

et al.

1999)

whereas

the

sluggishness

described above seems

to

be

leading in the rise

of

unemployment (Milas

2000).

The

Employment

Observatory

of Greece

(2003),

analysing

data taken from European

Commis-

sion and

OECD,

points

out

that

Greece

has

the

lowest

percentage

of

part

time emplovment

(47o

in

2001)

in Europe.

This

is mainly

because employees'

organizations consider

pari

time

work

to be

downgrading

of employmeni and

they reckon that its

expansion

in Greece

is

doubtful

because

of

the low income

it

offers.

Fur-

thermore, the same

study

suggests

the

percentage

of Greek

employees

stayir-rg

in

the

same

enterprise

for

long

periods

are

among

the

highest

in

Europe

(ibid).

However, evidence suggests

that there is a

turn

of

the

enterprises

towards

more

flexible

working

practices

(Kufidu

and

Mihal

1999). A

research

conducied

by

INE-GSEE suggests

that during the 2003, 55% o'i all

enterprise

hirings concerned

flexible work. The

same

research

suggests

that

86%

of

all

employees

have regular employment while

75,57

work for temporary employment;

part

time

employment

is 4,77o,

which

consists

of

2,9Y

in

regular

and

1,8%

in

temporary

employ-

ment whereas

practices

such as

tele-working

or

the lending

of

employees

are still

not

popular

(7,I7o

and 0,3%

respectively).

As

far

as the

public

sector

is

concerned,

it

is worth

mentioning

that

the first hiring

of

part

time

workers

ever were made

in

the

beginning

of

20047.

Similar

results have been

confirmed

by

ESYE

(2003),

the

Athens

Business

School

(Papalexandris

2000),

and the

European

Commission

(2000).

The conclusion

to

be

drawn

of

the

above

is

that

there

is an

obvious

trend

towards

more

flexible

practices

whereas

the degree of inflexibility of

the

Greek

Labour

Market

is

usually

overestimated

(Sabethv

2000).


9/13

Unemnlovmeni

in

Greece:

trends and main

causes

589

3.5

The

role

of

immigranb

Although

European Commission

sees

immigrants'

participation

in

the workforce,

and

especially

in

the

primary

sector,

as

a

problem

that

Greek

labour

market

facess, the

empirical

evidence

suggest

that their

impact

in

the labour

market

is

rather

beneficial.

To

illustrate,

the

Ministry

of

Labour

in the

2003

National

Action

Plan

for Employment

suggests

that

immigrants

are

good

news

for the

Greek

economy

as

a

whole where

it

characterises

them

as

hidden

source

of

power,.

The

work

of

Kasimis er al.

(2002)

suggests

that

in

rural

areas,

immigrants

not

only

do not

cause

problems

but also

provide

solutions

to

the

problems

that

local

economies

are

facing.

Particularly,

their

participation

in

the labour

force-fills

the

need for working

hands as

locals do

not want

to

work

in

the

fields.

Consequently,

Greeks

are

less

involved

in

manual

labour

and

instead

can

allocate

the

time

for a better

organization

of

their

business.

Many

of the

farmers

and

cattle

raisers suggest

that

if

it

was

not for

the

immigranis

they could

not

probably keep

their

business;

which

highlights

the

positive

impact of

immigrants

in the

local economies

as a whole. Similarly,

the

Labour

Institute

in the

latest

Employment

and Economic

Outlook

(2003)

points

out

that

immigration covers

the

needs of

the labour

market

for

cheap

labour while

its demand

is

suggested

io

be

continuous.

4

Condusion

Studying

the

Greek

labour

market

we

find

that

the high

levels

of unemployment

are,

to a certain

extent,

due

to

institutional

factors.

In

particular,

the trend

of individuals

for

higher education

and

the orientation

of

the educational

system

towards

the

needs

of

the

public

sector

have increased

scientifically

the supply

of

graduates,

which

has,

in turtt, outnumbered

the demand.

This

has led

to high

levels of

unemployment

among

graduates.

Other

important

factors

that contribute

to the

high level of

unemployment

are

the

high employment

protection

and

non-wage cost

of

employees

that discourages

employers

from hiring

new

employees.

In

addition,

the

active

labour

market

policies

of

the

governments


10/13

590

Theodore Katsanevas

and llias

Livanos

do not

seem able

to reduce the

level

of

unemployment. Finally,

immigrants

do

not

seem

to

have

a

negative

impact on employment

whereas in some cases

their

effect

is

desirable.

The key

point

of the

above

discussion is that

unemployment

in

Greece

is

to

a

large extent

structural

and

therefore microeconomic

policies

are

needed

in

addition to other

macroeconomic measures

in

order

to tackle it.

Notes

1.

Kathimerini

121112003.

2. In contrast,

for the

60 s when tl.re number

of

graduates

was

less,

the

returns to education were higher for tertiary

educaiion than were for

secondary

(Kanellopoulos

1980).

3. Oikonomikos Taxidromos

23,1712003.

4. Kathimerini 2911102.

5.

Kathimerini 2911102.

6.

Employmeni

proiection

was

measured by the

overall strictness of

employment

protection

legislation

(EPL)

in

each

country,

as

published

in

OECD

Employment

Outlook

1999

and refers to

both

regular

and

temporary

employment.

7.

Ta Nea

711012003.

8. Ta Nea

2412012003.

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